• Market-implied probability for a December Fed rate cut has fallen below 50%, a sharp reversal from recent weeks.
  • Hawkish commentary from Fed officials and persistent core inflation around 2.7% are driving the reassessment.
  • The shift has increased market volatility and tempered expectations for a year-end stock rally.

Traders are now pricing in less than a 50-50 chance of a Federal Reserve interest rate cut in December, a significant pullback in expectations that has rattled financial markets. Interest rate futures indicate just a 49.4% probability of a reduction at the final Federal Open Market Committee meeting of the year, according to people familiar with the matter, down from odds that were recently as high as 97%.

The swift reassessment follows a series of cautious signals from central bank officials, who have emphasized the ongoing battle against inflation. Boston Fed President Susan Collins and Chair Jerome Powell have both highlighted the need for patience, pointing to a divided committee where some members prefer to wait for more conclusive data before further easing policy. The Fed's benchmark rate currently sits in a range of 3.75% to 4.00% following a 0.25% cut in October.

Efforts to justify further rate cuts have hit a snag due to stubbornly high core inflation, which remains around 2.7%—well above the central bank's 2% target. While the labor market has shown signs of softening with the economy adding 150,000 jobs in October and unemployment holding at 4.1%, these developments have been insufficient to outweigh inflation concerns, particularly with new tariffs adding to price pressures.

Without a clear signal for a December cut, market sentiment has soured. Major equity indices have retreated between 0.5% and 1.0% from recent highs, muting hopes for a traditional year-end rally. The uncertainty has also reinforced higher borrowing costs for consumers, keeping mortgages and auto loans expensive. A massive $7 trillion in money market funds, yielding approximately 4.5%, is likely to remain parked on the sidelines, limiting potential inflows into the stock market.

A spokesperson for the Federal Reserve declined to comment on market pricing. The central bank's next move is now widely seen as data-dependent, with economists' consensus leaning toward a potential cut in January 2026 if conditions warrant. However, if upcoming labor data shows further weakening, odds for a December move could quickly rebound above 70%, according to analysts.

Correction: An earlier version of this article misstated the current federal funds rate range. It is 3.75% to 4.00%.